Physical Real Estate Outperforming REIT Funds

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Peoples Home Equity compares the one year returns of real estate investment funds to owning physical property.

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National median home prices have climbed more than most major real estate mutual funds.

With the passing of Thanksgiving, the year is nearly over as we enter December. Peoples Home Equity finds that since November of 2012, national median home prices have climbed more than most major real estate mutual funds (real estate investment funds)

According to DQnews.com property values have risen 12% from November 28th, 2012. In contrast, the return for 3 notable reit ETF’s (exchange traded funds): SPDR Dow Jones REIT ETF, iShares US Real Estate, and iShares iShares US Real Estate have respectively been: 6.1%, 5.2%, and 7.7% since November 27th, 2012.    Note, the returns shown include the dividend payouts to investors from rent payments collected. If one focuses on the sole price of the fund itself, the returns for each ETF are a measly, 2.84%, 1.14%, and 3.60%. With national median home sale prices up 12%, owning physical real estate has outperformed the reit funds. A home owner could have further done better over the past year by purchasing a property in an area that is outperforming the national average in real estate growth (such as Boston or San Francisco) and then rent out his or her unit.

One must understand that real estate funds hold a number of companies that are specifically geared for property appreciation and collecting rents. For example State Street’s SPDR Dow Jones Reit ETF hold companies such as Simon Property Group, Public Storage, Prologic, Inc which all invest in physical real estate, much of which is commercial properties, and rent out their units. Most other real estate ETF’s hold these three companies in their top holdings. The idea is instead of going through the trouble of obtaining a mortgage, searching, buying, and renting out a property, one can just invest into a real estate investment trust or, REIT ETF. The problem with this strategy is that all the trust is put into the directors of these large firms that may not be making the best investment decisions, such as buying in prime locations. These funds have been lagging due to their large holdings in commercial real estate which has been lagging the growth seen in urban condo investments and single family homes.

As cited in a previous news release titled ‘Real Estate Remains a Great Investment Compared to Stocks’, Peoples Home Equity outlined the historical advantages of owning real estate over stocks. This past year proves once again, that owning physical real estate can be better to own than reit funds.

If looking to invest in real estate, consider contacting a loan officer at Peoples Home Equity. The lender offers many low rate mortgage options that are great for investors. Their home loan application page helps individuals to get approved for a mortgage quickly. Prospective home buyers can also use Peoples Home Equity’s online tools such as ‘how much I can borrow?’ or ‘monthly payment calculator’ to mentally get their finances before searching for an investment. To get started please visit: PeoplesHomeEquity.com

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